The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge
AMENDED ORDER: (1) GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT; (2) SETTING STATUS HEARING INC., (Doc. No. 35)
Presently before the Court is Plaintiff's motion for partial summary judgment. (Doc. No. 35.) Also before the Court are Defendants' opposition and Plaintiff's reply. (Doc. Nos. 39 (Opp'n), 40 (Reply).) Having considered the parties' arguments and the law, the Court GRANTS Plaintiff's motion.
On or about November 1, 2008, Plaintiff Craig A. Irving, as shareholders' representative for the former shareholders of ConfirmNet Corporation (the shareholders), entered into a written agreement and plan of merger with Defendants Ebix, Inc. and Ebix Software India Private Limited, ConfirmNet Corporation, and ConfirmNet Acquisition Sub, Inc. (Doc. No. 35-2 (Irving Decl.) ¶¶ 1, 3; see id. Ex. A (Merger Agm't).) The merger agreement entitled the shareholders to certain consideration in connection with the merger, including future contingent consideration. (Irving Decl. ¶ 4.) The future contingent consideration consisted of "earn out" payments, "each to be calculated pursuant to the terms of the Merger Agreement and the gross revenue for certain future periods." (Id. ¶ 5.)
Relevant here, the merger agreement required Defendants to pay a second earn out "based in part upon the incremental increase of ConfirmNet's gross revenue for 2009 compared to 2008." (Id. ¶ 6.) The merger agreement provides:
Second Earn Out. A cash consideration equivalent to 1.538 times the incremental increase, if any, of Gross Revenue for the 12-month period beginning January 1, 2009 as compared to the Gross Revenue for the 12-month period beginning January 1, 2008 . . . will be payable to the Shareholders by Parent and Intermediate Parent, jointly and severally (the "Second Earn Out"). This cash consideration, in accordance with the Merger Consideration Certificate, will be payable promptly after financial results for the 12-month period beginning January 1, 2009 are tabulated by Parent (but in no event later than 30 days after the end of calendar year 2009) . . . . (Merger Agm't § 1.2(b) (italics added).) Thus, under this provision, the second earn out was payable no later than January 30, 2010.
In addition, the merger agreement required Defendants to submit to the shareholders "their financial statements and a certificate showing a 'good faith calculation' of the Second Earn Out based upon Defendants' accounting records." (Irving Decl. ¶ 7.) The merger agreement provides:
Not later than . . . January 30, 2010 (for the Second Earn Out) . . . Parent shall deliver to each Shareholder a copy of the financial statements of the Parent and/or Surviving Corporation and a certificate showing the calculation of the Contingent Merger Consideration for the applicable period, certified by the Chief Financial Officer of Parent to be a good faith calculation of the Contingent Merger Consideration derived from the accounting records of Parent (the "Contingent Gross Revenue Certificate"). (Merger Agm't § 1.2(b)(i).)
On June 30, 2009, the parties entered into a letter agreement regarding, inter alia, the second earn out. (Irving Decl. ¶ 15; id. Ex. D.) As to the second earn out, the letter agreement provides: "For purposes of the Second Earn Out which will be based on growth in Gross Revenue for 2009, the 2008 Gross Revenues were $5,120,210 ($3,519,840, representing the Gross Revenue for the first three quarters of 2008, plus $1,600,370, representing the Gross Revenue for the final quarter of 2008)." (Id. Ex. D, at EXD_0095.)
The shareholders did not timely receive payment of the second earn out or the contingent gross revenue certificate pursuant to the terms of the merger agreement. (Irving Decl. ¶ 9.) On March 12, 2010, Plaintiff received an executed contingent gross revenue certificate for the second earn out. (Id. ¶ 10.) Defendants certified that the amount of the second earn out was $2,975,386. (Id. ¶ 12.) In arriving at the certified amount, Defendants made three deductions to the incremental increase in ConfirmNet's gross revenue for 2009 compared to 2008. (Id.) Relevant here, Defendants deducted from the second earn out $213,393 allegedly attributable to an overstatement of the 2008 gross revenue figure used to calculate the first earn out (the second deduction). (Id.)
On April 12, 2010, Plaintiff filed suit alleging that Defendants breached the merger agreement by failing to pay the second earn out in accordance with the merger agreement. (See Compl.)
On May 5, 2010, Defendants moved to dismiss Plaintiff's complaint or stay the case pending arbitration. (Doc. No. 6.) On August 10, 2010, the Court granted Defendants' motion insofar as it sought a stay. (Doc. No. 18 (MTD Order), at 15.) However, the Court found that the dispute regarding Defendants' obligations under the letter agreement "must be resolved prior to this case proceeding to arbitration." (Id. at 8.) Accordingly, the Court ordered Plaintiff to file a motion for summary judgment regarding Defendants' obligations under the letter agreement by October 1, 2010. (Id. at 15.) Plaintiff filed his motion for summary judgment on September 27, 2010.
Federal Rule of Civil Procedure 56 permits a court to grant summary judgment where (1) the moving party demonstrates the absence of a genuine issue of material fact and (2) entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "Material," for purposes of Rule 56, means that the fact, under governing substantive law, could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). For ...